“The private sector’s share of total credit declines sharply from 29.7pc in July 2019 to 19.8pc in July 2024, lowering policy rate could encourage borrowing and investment,” Motiwala states
By Abdul Rafay Siddiqui
KARACHI: Chairman of the Businessmen Group (BMG) Zubair Motiwala and President of the Karachi Chamber of Commerce & Industry (KCCI) Iftikhar Ahmed Sheikh have called on the State Bank of Pakistan (SBP) to implement a substantial reduction in the policy interest rate, suggesting a decrease of at least 500 basis points to bring the rate down to 14.5 percent from the current 19.5 percent.
In a joint statement, Motiwala and Sheikh highlighted the recent decline in inflation, which fell to 9.6 percent in August—the lowest in three years—following a peak of 38 percent in May 2023. They argued that this significant drop in inflation, combined with the recent upgrade of Pakistan’s credit ratings by Moody’s from Caa3 to Caa2, provides a strong justification for reducing the policy rate.
Motiwala emphasized that the previous single-digit inflation recorded in October 2021, when the policy rate was at 7.25 percent, suggests that a drastic reduction in the policy rate is necessary to revive industrial and economic activities. He noted that Large-Scale Manufacturing Index (LSMI) growth for FY24 was only 0.9 percent, underscoring the negative impact of prolonged high policy rates on the manufacturing sector.
“The private sector’s share of total credit has declined sharply from 29.7 percent in July 2019 to 19.8 percent in July 2024. Lowering the policy rate could encourage borrowing and investment, boosting economic activity,” Motiwala stated. He also pointed out that Pakistan’s real interest rate, currently at 9.9 percent, is considerably higher compared to neighboring countries like India, China, and Bangladesh, where real interest rates stand at 3.0 percent, 2.9 percent, and minus 3.2 percent, respectively. A reduction in the policy rate could enhance Pakistan’s regional competitiveness, he added.
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